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Unpredictably rising wages in Batam, Riau Islands, have driven some foreign investors to relocate their factory operations out of the region, citing high production costs.

One of the companies, Japan-based micro-motor producer PT Nidec Seimitsu Batam (NSB), has officially relocated their production factory from Batam to Vietnam, laying off 500 workers in the process as of Tuesday.

Batam City Manpower Agency head Zarefriadi said that NSB had reported its plan to terminate 500 workers last month, and ultimately carried out their plans after month-long negotiations on workers' rights went stale.

Zarefriadi confirmed that NSB's decision to relocate to Vietnam was spurred by rising production costs, including rising wages in Batam.

'Aside from NSB, several other foreign firms will likely make the same decision, but no announcement can be made yet as nothing has been confirmed,' Zarefriadi told The Jakarta Post on Monday.

According to his files, NSB is the first company to lay off workers due to wages in 2014. Last year, Japanese electronic manufacturing company PT Sun Creation Indonesia (SCI) closed its production factory in Batam and also relocated to Vietnam under similar circumstances, laying off 1000 workers in the process.

Japan is the sixth-largest contributor to foreign investment to Batam, with 15 companies operating in the region with total investment amounting to US$128.8 million. Singapore remains the largest contributor, followed by Malaysia, Taiwan, South Korea and Australia.

The current minimum wage in Indonesia stands at Rp 2.42 million ($209.3), which is almost 20 percent higher than 2013's rate of Rp 2,04 million.

PT Nidec Seimitsu Batam produces motors for electronic devices. The company used to be named PT Sanyo Precision Batam before it was taken over by Nidec.

Ground observations made by the Post at the deserted Nidec factory site in the Batamindo Industrial Zone, the largest industrial zone in the region, confirmed that the doors of the factory had been sealed shut and was showing no signs of activity.

Despite the shutdown, the Investment Coordinating Board (BKPM) at the Batam Free Trade Zone said that it had yet to receive any reports on the shutdown by NSB.

Chairman of the Indonesian Metal Workers Union (FSPMI) Batam Suprapto suggested that the relocation of foreign investors from Batam was likely caused by tax regulation problems rather than increasing wages.

'I don't think wages are the problem for foreign investors in Batam. This is most likely happening because of tax regulations,' Suprapto said.

Meanwhile, head of the Korean Businesspeople Association in Batam, Sonia Kong, said several Korean companies that had invested in Batam in the last five years had come and gone. Currently, there are 23 Korean companies operating in the region compared to the 40 in 2009.

'Seventeen companies have already relocated since 2009, and there seems to be one closure every year. There are many problems behind this, such as the increase in wages, which could hit up to 43 percent in a single period. Workers' wages are relatively low here, but the cost of living is high,' Sonia said.

'We understand wages need to be increased. Gradually, not drastically like what we've been seeing,' she added. (dyl)